Bush Studies Ruling Against Racial-Based Scholarships : Education: Black official had decided that reserving funds for minorities violates the law. The issue is called ‘an open sore’ for White House.

A mid-level Education Department bureaucrat’s ruling against college scholarship funds reserved for minorities has plunged the Bush Administration once more into confusion over the politically charged issue of race, splitting the White House over how to respond.

“We’re looking at it right now,” President Bush said as he left Friday for a weekend at his Camp David retreat. Indeed, the topic has been the subject of intensive meetings at the White House since Wednesday’s announcement that the Education Department now believes that scholarship funds reserved for minority students violate federal law.

“People in here regard it as a major problem,” said one senior White House aide. The issue has become “an open sore,” the official said. “We’ve got to deal with it.”

More-conservative aides, however, have been urging Bush to go slow, suggesting that the department’s ruling, which officials unanimously insist caught Bush and his top aides by surprise, merely follows the Administration’s policy of opposing preferences based on race.

White House Counsel C. Boyden Gray and other officials are expected to review the issue over the weekend, and Administration aides said they expect Bush will decide next week whether to get directly involved in the controversy.

At the same time, Bush will be trying to select a new head of the Education Department to replace Lauro F. Cavazos, whom Bush forced out of office earlier this week.

With students and schools across the country uncertain over how the new ruling will affect them, the case underlines the volatility of racial issues at a time when many Republican strategists are advising Bush to use opposition to affirmative action as a leading issue in the 1992 campaign.

The scholarship controversy also illustrates another problem--how easily an Administration, even one as tightly centralized as Bush’s, can be drawn into political difficulty by any one of hundreds of otherwise anonymous officials with authority over small parts of the far-spread federal establishment.

In his remarks Friday, Bush indicated that only earlier in the day had he learned the background of the decision-maker in this case, Michael L. Williams, the Education Department’s assistant secretary for civil rights. And he expressed apparent relief at his discovery that the 37-year-old conservative University of Southern California law school graduate is black. “I don’t think, in this case, anybody could accuse” Williams of acting “on a racist basis. That’s one thing I’m very pleased about,” Bush said.

That is about all anyone at the White House was pleased about in the situation, however.

Williams apparently has been considering this issue for months, since the Washington Legal Foundation, a conservative legal group here, filed a complaint urging him to investigate racially exclusive scholarships. But, White House aides insist, neither Williams nor anyone else informed Bush, Chief of Staff John H. Sununu or other top White House staffers about the question. “Sununu read about it in the news summary,” one aide said.

Bush’s aides are particularly sensitive about the question because they spent much of the fall in a bitter fight over civil rights leading up to Bush’s veto of a bill to strengthen civil rights laws. And both Bush and his wife, Barbara, have devoted considerable energy to raising scholarship funds for minority students in the past, lending a personal immediacy to the controversy that other domestic policy issues often lack for the President.

Education groups, for their part, are upset that the new policy was simply announced in a press conference Wednesday with no written regulations or other official policy that would help school officials know what they are now supposed to do.

“What are we dealing with?” asked Sheldon Steinbach of the American Council on Education, which has taken the lead in organizing a response from educational institutions. “This is government by press release.”

In fact, although the ruling has caused widespread concern on campuses nationwide, Williams’ announcement has no binding legal effect. To give his opinion the force of law, the department would either have to propose regulations or find a school with a race-based scholarship program and bring a legal challenge against it. In either case, the process--which presumably would include the threat of withholding federal funds--would take months.

In the meantime, Washington-based education organizations are advising their members to sit tight and leave their current programs in place.

Additional confusion has been caused by the fact that no one either in the government or among the education groups appears to know how many scholarships might actually be affected by Williams’ position.

“I don’t have the foggiest idea,” Steinbach said. Most scholarship funds across the nation have no racial restrictions, he noted, but “almost every major institution in the country has some” funds that were donated specifically to benefit minorities. In addition, some institutions have funds specifically for women, or men or people from a specific religious or ethnic group, all of which might now be subject to challenge.

Until this week, Education Department officials routinely had approved such scholarships. If a college had, for example, a dozen scholarships reserved for minority-group members out of an overall sum that provided scholarships to 100 or more students, “that’s not been a problem,” said Washington attorney David Tatel, the Education Department’s civil rights chief during the Jimmy Carter Administration. Under that sort of situation, “there’s no discrimination. Minorities and non-minorities can both get scholarships,” Tatel said.